It is about risk again. The Management Board of the Warsaw Stock Exchange (WSE) has refused to list PBG bonds, issued as part of its arranged restructuring, on Catalyst. The bonds were taken up by the creditors of PBG and covered by the receivables under the arrangement. The creditors received new bonds in place of their original receivables. The refusal occurred due to the following:

• “The content of the basis for the refusal to express an opinion on the audit of the annual consolidated financial statements of PBG Group for 2018 and on the audit of the annual financial statements of the Company for 2018;
• The Company’s decision to request the Bondholders to reschedule the redemption of the Bonds […];
• The risk related to the untimely performance of part of the obligations under the arrangement“.

All this is true.

The expert refused to express an opinion on the Company’s financial statements for 2018 (the same as in the previous year). Simply put, the reason for the refusal is that the auditor was not convinced by the vision presented by the Management Board. The auditor claimed that he did not obtain sufficient evidence justifying the assumptions made by the Company’s Management Board in the cash flow plan for the sources of financing of the Company’s liabilities during the arrangement. In other words, the expert was not convinced that PBG would generate sufficient cash quickly enough to meet its obligations under the arrangement. And failure to repay those liabilities could jeopardise the company’s status as a going concern.

PBG asked its bondholders to postpone the bond repayment date due to problems with liquidating the assets that were supposed to finance the repayment.

PBG’s situation is less than perfect. The company’s liquidity is uncertain. It is therefore uncertain whether the bonds will be repaid on time.

In such a situation, the WSE refuses to place the bonds on the market. I am not sure about the legal basis for the refusal, but I can assume that the trading safety clause was applied. It allows the WSE to refuse the listing if it determines that listing the financial instruments would jeopardise the safety of trading or the interests of its participants. When assessing the application in this respect, the WSE takes into account, in particular, the issuer’s business and its development prospects, including the sources of financing [5 para. 1 item 2 of the ATS Rules].

The listing of PBG bonds will not (unfortunately) solve the company’s financial problems. However, the refusal to list will have an impact on the situation of the bondholders. Without access to organised trading, the sale of bonds will be significantly hindered. It is not so much the issuer who will lose, but rather the bondholders and investors. The former will have fewer opportunities to get rid of PBG’s troublesome debt, while investors will fewer opportunities to acquire such securities for purposes known only to them (e.g. speculation or settlement).

I understand that the WSE would prefer to avoid problems with the securities of an issuer in a precarious financial situation. In my opinion, however, blocking access to exchange platforms will not solve any of those problems. Investor protection should not mean incapacitating both them and the issuer. We should have a debate about investor protection, particularly about properly informing the market of the risk (disclosure obligations, special designation) and about the rules for offering such instruments. Instead, the debate has been shut down.

I have always supported allowing debt to be traded as widely as possible, including the debt of entities in a bad financial situation. I still say that it was wrong to legally exclude the possibility of normal trading in bonds that have not been redeemed on time. Now we are blocked from a different angle. The comfort of infrastructure institutions has won again.